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Is the National Broadband Plan doomed?

"On one level everything has changed and on another level nothing has changed."

That’s how one person centrally involved in the National Broadband Plan (NBP) summed up the consequences of Eir’s decision to pull out of the tender process last week.

To everyone outside that process and even a few inside it, it came as a pretty big surprise.

Behind closed doors Eir had been posturing and making veiled threats about withdrawing.

But few thought it likely that it would follow through.

The company was after all in the driving seat it appeared.

It had it all.

A former incumbent State operator, with massive infrastructure across the country, a significant existing customer base, all the requisite expertise, owners with deep pockets and a publicly stated policy of bringing high speed broadband to rural Ireland.

So how in a two horse race could it fail to win at least one if not both of the contracts on offer from the state, aimed at connecting the 542,000 premises that even in 2018 still don’t have such a service?

But for some reason, Eir didn’t like the look of what it was potentially getting itself into.

Instead it decided to get out now, rather than leading the state and other parties on any further and putting more costs on itself.

What was Eir’s problem?

The decision by Eir was a big call, because essentially it means it is turning its back on a huge percentage of its existing customer base, who currently don’t have any option but to use the company’s services.

But fundamentally, Eir claims it couldn’t make the NBP numbers stack up.

This was driven, it says, by a combination of the complexity of the draft contract on the table and uncertainty around regulatory and pricing issues outside the NBP process.

In effect, Eir claims the conditions of being party to the NBP rollout would have required it as a former state telecoms provider to do and provide things that others involved would not have to.

For example, it would have been forced to set up a wholly new wholesale arm to deal with the NBP, even though it already has one (Open Eir) that employs hundreds of people.

This, it claims, would have cost it tens of millions of euro.

Parts of Eir’s existing business would also have been precluded from competing inside the NBP geographical areas, putting it at a disadvantage.

It also points to the shifting regulatory environment and the proposal by telecoms regulator Comreg to reduce the amount Eir can charge other operators for using its infrastructure.

These and other issues, the company claims, had the net effect of making the risks of winning one or both contracts too high, prompting its withdrawal.

Some though have also pointed to the purchase of a majority stake in Eir late last year by a French consortium led by billionaire Xavier Niel as being behind its motive to leave.

The new owner’s focus, it has been reported, is on providing broadband to urban areas, the suggestion being that Eir’s decision is the consequence of a change of strategy prompted by the leadership change.

Richard Moat, outgoing Eir CEO, was clear however, when he spoke to RTÉ News, that this was not the case.

He said that because the NJJ Telecom Europe led purchase had not yet received regulatory approval, the decision to withdraw was taken by the current board without the influence of the new majority shareholders.

So what does all this mean for the NBP?

Well a lot depends on who you listen to and who you believe.

The Government has, as you’d imagine, been dressing up the turn of events, saying in many ways it makes no difference and in some ways it will be a benefit.

It claims it isn’t unusual for a former incumbent operator to withdraw from such a tendering process, as it happened in Australia and New Zealand.

It also says the remaining bidder, the enet-SSE joint venture, remains thoroughly committed to the tendering process.

That process, the Government says, is a matter of months away from conclusion if everything else goes to plan.

There are five or six outstanding issues on the table to be resolved, sources say, but problems are not anticipated.

After all, enet-SSE don’t have the same historical baggage to contend with as the former state telco.

If the details can be finalised between now and the summer, then the Government says construction can begin soon after that, with an estimated two-three years completion timeframe.

Others though, including opposition spokespeople, have branded the whole thing a shambles and say it’s time to review the whole sorry saga.

Doesn’t enet now have the Government over a barrel when it comes to price?

That is an obvious concern for those of us on the outside looking in.

But interestingly both the Government and sources close to enet-SSE say this will not be an issue.

For starters the Government says it received two detailed submissions from both Eir and enet-SSE in September that laid out considerable indicative information about costs.

In tandem with this, part of the 80-strong government team has been working out their own detailed costings.

Armed with all this information, the Government says it has a good idea about what enet-SSE would be offering on price and what the project should cost.

This, sources say, will allow it to call out the bidder if it thinks it is trying to leverage its position as the sole contender.

The Government also says it has a walk away clause which gives it the option of ceasing negotiations with enet-SSE if this happens.

Obviously though, the big loser in such a scenario would be the Government itself, leaving it at the end of a six-year design, planning and tendering process with no bidder left.

This means that indirectly enet-SSE does now find itself in a stronger position to call the shots, although sources within the consortium played down the likelihood of this suggestion.

What about delays?

Minister for Communications, Climate Action and the Environment Denis Naughten said that far from delaying the rollout, this development could actually speed it up.

He argued that with one bidder left it should be possible to complete the tender process quicker, resulting in shovels being in the ground sooner than previously thought.

This assumption, however, is predicated on there not being any further hiccups - which given the history of the process to date looks like wishful thinking.

Ironically, even though it is now on the outside, one of the biggest potential stumbling blocks remains Eir.

For enet-SSE to be able to make the project work, they need good unhindered and reasonably priced access to Eir’s infrastructure.

If they don’t get guarantees, then it is likely they won’t commit.

The Government is acutely aware of this danger, it seems, and so is threatening legislation to copper-fasten 25 year access to Eir infrastructure.

And to be fair, Eir says it is committed to helping the process from the outside - something which is in its interest if it allows it to make money from wholesale access charges.

But there is a small chance the regulatory issues could end up in the courts and that could have a serious knock on effect for the NBP timeline.

So is the NBP doomed?

On balance, the answer to that right now is a tentative no.

Yes to lose one bidder, SIRO, was unfortunate. To lose a second, Eir, is somewhat embarrassing.

But if the Government can conclude a deal quickly with enet-SSE that doesn’t require it to hand over the family silver, then it will be full steam ahead.

enet-SSE has been steadily building its project team and putting its rollout plan in place with contractors.

It also wants to make a good fist of the contracts, should it be awarded them, because it has its eyes on similar contests coming up around Europe, including in Scotland.

To be able to go into bidding wars elsewhere boasting that it was the operator that brought 542,000 premises online in rural Ireland would certainly help its cause.

If something catastrophic goes wrong though before contracts are concluded, then it would surely be curtains for this long-running not very entertaining soap opera.

Denis Naughten hinted the Government has other options it can explore, because not to have considered such a scenario would have been naive in the circumstances.

But he and his Cabinet colleagues must be praying they don’t have to turn to them.

After all, a collapse in the process with the prospect of a general election around the corner would be disastrous politically.

Those in rural Ireland still hanging-on patiently, desperately waiting for connectivity that those in towns and cities now take for granted, would be livid and surely take it out on the Government in the ballot box.

So expect a big push in the coming months to get this over the line.

And let’s just hope the State doesn’t end up having to sell its financial soul to get it there.

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